Big Stakes Games For Big Data
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Last week was a short one in the US, and a quiet one across all of gaming. Studios in the web3 space continued to gear up for their releases, but the tough market has started to set people off. Fundraising did not get any easier, while the stakes for games looking to launch alphas and betas got higher:
- Sega announced its disenchantment with web3
- Content creators showed their agitation in a tough market
- Reddit moderators fought the company with NSFW tags
- Diablo 4’s ultra rare faucet went haywire
- The issue of IP rights and AI got highlighted in NSFW mod controversy
- Ubisoft successfully reduced cheating by making it too difficult
Sega Scales Back its Web3 Efforts
Ironically, @0x_zeus published his upbeat thread on Sega in web3 just days before the sobering article from Bloomberg. The gaming powerhouse did a 180 on the blockchain space, pulling its prime IP from any web3 initiatives.
While Shuji Utsumi quotes, such as “the action in play-to-earn games is boring”, got shared and re-shared, I believe there is a hidden message in some of the more subtle lines. Sega is only pulling prime franchises from the web3 space, and remains optimistic on the technology.
This is no different than what many of the studios in Asia have been doing. This is also not too far off from the Ubisoft blueprint: cool down expectations and quietly build. Ubisoft has recently announced a web3 title, despite publicly distancing itself from the space in previous years.
I think Sega’s approach is healthy: isolate exposure and lower expectations to minimize the downside and continue to watch the space. Currently, there are still very few gamers in web3 and conversion from web2 to web3 has been low in the industry.
The revised approach should enable Sega to monitor how the second wave of games performs without risking any major IP. I believe before we see scalable gamer acquisition funnels in web3 major studios will not risk their prized franchises.
Tensions Among Web3 Content Creators Start to Show
Gaming content creators play a very important role in popularization of games, as they offer a direct to consumer distribution channel for titles. This is doubly important in web3 where publishing channels are unproven and extremely limited.
However, the presence of tokens and paid content creates uncertain incentive dynamics between creators and their communities. Some are definitely starting to resemble ICO KOLs of old, while the gaming crypto twitter is giving off some 2018 ICO vibes.
The recent deleted tweet from Jake Browatzke is just one example of finger pointing in a challenging market. Studio budgets have tightened and we are seeing clashes over revenue streams and reputation as a result.
The question of paid content is a challenging one for games in web3. There appears to be a loose consensus that the sector needs content creators to improve distribution. However, it does not have an endemic audience for web3 streamers to target the web3 space.
Moreover, the early stage of most games make it difficult to create sufficient content for a traditional gaming audience, for those brave enough to risk losing their viewers. So, content creators are struggling to support themselves in this environment.
Sponsored content is one of the ways the industry can support creators and help keep this part of the ecosystem alive while it builds an audience. However, there need to be strict standards of disclosure and transparent method of enforcement for this not to become damaging.
Reddit See NSFW Opposition to its New Policies
After acquiring a massive user base and a treasure trove of data, Reddit decided to go Elon Musk on it and gate its API access with a paywall. It’s a massive paywall too: 50M API requests will run about $12K, crippling most third party application budgets.
This naturally caused community outrage with many subreddits going dark in the process. Reddit came back threatening to unseat the mods, but then many got creative by restricting access through the NSFW tag.
While Reddit got wise to it pretty quick, some like the Cybperpunk 2077 subreddit actually started to defend the NSFW label. The game’s subreddit for instance was flooded with nudes from the game.
It’s unlikely that Reddit will reverse its stance in the short term, but there are multiple pieces at play. The comparisons with Twitter mandate monitoring the situation around Instagram Threads. The new application quickly surpassed 30M registration prompting a lawsuit threat from Twitter.
If Meta is able to capitalize on the discontent of Twitter’s user base it may send a strong signal through the space — if you get greedy someone will take your place. A similar dynamic has been developing between Twitch and Kick.
The recent trends in the social media space suggest that giants can be toppled, but it is concerning that web3 teams are not able to take advantage. If Meta eats Twitter it will lead to further consolidation in the space.
There is another thing to keep in mind — beware of freebies coming from centralized players. We have seen time and time again the free-to-use trap as companies try to create a data moat. This will be particularly important to watch with AI companies, which rely so heavily on data.
Blizzard Stops Faucet to Fix Issues With Drop Rate
A recent update to Diablo IV made it much easier to acquire ultra rare items, so easy in fact that Blizzard had to stop the party. Now the players who were lucky enough to get one of these assets are worried they will be stripped of them.
I have already written a lot about studios abusing centralization, so this time I want to focus on some challenges that teams building games with web3 elements should pay attention to, primarily liveops.
A lot of the web3 games launching their alphas and betas over the next couple of quarters will be coming out with a very limited amount of ready content. That means that studios will need to push updates quickly and regularly.
Pushing a drop rate accelerant by mistake may have much bigger repercussions in web3. For one, prices on the open market will quickly be affected. Moreover, freezing a faucet as a fix can take away gamers incentive to play, especially if the game is heavily dependent on play-to-earn.
It will be important for studios to come up with adequate testing plans and also be very clear in the communication with their communities in order to avoid serious setbacks. It is unrealistic to expect no issues, so teams need to have a plan to handle them.
AI Usage Runs Into More IP Rights Issues
The issue about data being inappropriately used to feed AI models is becoming a recurring theme. Most recently a number of voice over actors have become aware that their voices were used to feed deepfake software and create clips for NSFW mods.
The mods were distributed through Nexus Mods, which appears to have a much softer stance than Valve, whose views on AI I discussed last week. The story is evolving and it is unclear how many actors and how many mods may ultimately be involved.
AI is fast replacing crypto as the thing to blame for all things nefarious on the internet. However, the real culprit is once again a lack of regulatory guidelines. AI is evolving quickly, and it will be important for many including those in gaming to understand what data rights are defensible.
Ubisoft Has a Secret Weapon Against Cheaters
The strategy, code named “QB”, has reportedly been successful in not only reducing the number of cheaters, but has become a deterrent for software houses developing new cheats for the game protected by it.
There is little known about the approach, as it is secret, but there are speculations that the studio is pushing regular updates to make cheats incompatible with new versions. The frequent nature of the updates forces cheaters to chase, reversing the typical attacker-defender dynamic.
There are a lot of interesting anti-cheat approaches being used by gaming companies. I would expect the evolution of AI will make this arena that much more intense as both cheaters and studios will try to use data analytics to study and predict each others’ behavior.
For studios working with web3 it is important to keep current with these trends. Cheaters can be a lot more damaging for open economies than for closed ones, and algorithmic attacks have storied history in this space.
A lot of the sophisticated anti-cheat software is proprietary and is developed and maintained by big studios with deep pockets. It may be prudent for studios in web3 to collaborate on this as a community in order to mitigate the high cost of research, development and upkeep.
This wraps it up for this entry. As always, if you are working on something exciting in the web3 gaming space, or are a traditional gaming team looking to explore the possibilities, don’t hesitate to reach out to any of us at Sanctor Capital. Have a great rest of your week!
Ilya Abugov (@AbugovIlya)
Disclaimer: This commentary is not investment advice. It does not purport to include any recommendation as to any particular investment, transaction or investment strategy, or any recommendation to buy or sell any investment. It does not reflect any attempt to effect any transactions or render any investment advice.
This post is solely for informational and entertainment purposes. It is inherently limited and does not purport to be a complete discussion of the issues presented or the risks involved. Readers should seek their own independent legal, tax, accounting, and investment advice from professional advisors. The views reflected in this commentary are subject to change at any time without notice.
